How Long Should You Keep Your Records?
You've gone into the spare bedroom's closet and it's the last time you'll allow yourself to be beaned with a box full of tax records and receipts from who-knows-when. The stuff has been gathering dust on that top shelf and every time you go in to look for something, the box happens to be where your head wants to go.
Can't we just pitch the whole mess?
Well, yes ... and no.
Some of the stuff – receipts from charities, cancelled checks for that medical deduction you claimed, your W-2s – should be kept for three years. That's how long the IRS can wait to audit your finances. And this information, providing you stashed it away, can help prove you deserve the deductions or credits you took.
But there are circumstances that will expand the IRS' snoop time. Underreport your income by 25 percent or more, and they can audit you up to six years after you file. If you don't file, there is no cutoff – you can be audited indefinitely.
So for this tax year and two years previous, you need to keep these documents, along a copy of that year's tax return:
•Receipts showing cash contributions to charity
•Medical expenses you paid, but that weren't covered by insurance
•Work-related expenses you paid, but not paid by your employer, and
•Business travel or entertainment costs of more than $75.
But some records need to be kept even after you're out of the woods, audit-wise. For example, keep a copy of your income tax return and the IRS acknowledgement or acceptance document for every year you've filed. If the return is 4 years old or older, you can destroy the supporting documents – all those receipts and so forth – but keep the return itself and the IRS confirmation.
Make Tech Work for You
To lighten your storage load (remember that cardboard box that keeps banging your bean?), consider investing in a scanner. Scan those documents into your computer and keep the electronic version on a CD or flash drive. Each CD or flash drive can hold thousands of pages of documents, so storage space is no longer a problem.